Wyoming: Regulatory Clarity and Crypto-Friendly Banks Fuel Blockchain Revolution

Surprise! Wyoming is the top-ranked U.S. hub. Many of CoinDesk’s Crypto Hubs 2023 criteria were measured on a national basis, so all of the U.S. hubs were hampered by a middling crypto regulatory score, a measure in the drivers category and the most heavily weighted criteria – 35% – of the total. This negative was partially offset by the highest crypto adoption score (another drivers criteria) in our sample, however. Given that the regulatory and adoption scores were based on countries, Wyoming broke from the U.S. pack with its high quality of life (at 15%, the second-heaviest weighted criteria, and part of the enablers category) and other individual measures. The least populous U.S. state benefited from its eye-popping per-capita figures for crypto, blockchain and Web3 jobs, companies and events, which comprise the opportunities category.

Though it’s the least populous U.S. state, with 2.3 times more cattle than humans, Wyoming has been on a campaign to become its most crypto-friendly.

Since 2016, the state has passed over 35 laws regulating one or another aspect of the crypto industry. That work has been bearing fruit, said Steve Lupien, director of the Center for Blockchain and Digital Innovation at the University of Wyoming.

“We’re seeing a lot of companies that are moving to Wyoming, last time I checked there were over 3,000 companies that domiciled in Wyoming, and there are probably more now,” Lupien told CoinDesk.

Read Crypto Hubs 2023: Where to Live Freely and Work Smart

These companies are bringing well-paying tech jobs, he added. As a university professor, Lupien has watched a lot of his graduates leave Wyoming over the years (70% of University of Wyoming graduates end up leaving the state). But now, finally, there is a chance to mitigate that brain drain.

“It gives my university graduates an opportunity to work in the digital-asset space and not have to leave the state,” he said. “A number of my graduates are now working for Wyoming companies, or [have] started Wyoming companies.”

Lupien believes that what attracts crypto businesses, such as the major exchange Kraken and IOG, (formerly IOHK, the organization behind the Cardano cryptocurrency), is the greater regulatory certainty, which is in short supply in the United States as a whole.

Wyoming can’t boast an especially lively business or cultural scene, compared to other more populous crypto destinations like New York, Austin or the West Coast tech hubs. However, it has been passing crypto legislation at a pace unparalleled elsewhere in the country.

In 2018, Wyoming passed a law exempting utility tokens from the securities regulation, resolving on the local level the most daunting legal challenge of the U.S. crypto industry. Tokens get the exemption if they are issued and sold to buyers exclusively for “consumptive purpose,” meaning, to be exchanged for goods or services.

Later, other laws exempted cryptocurrency-related activities from the purview of the state money transmitter law, allowed companies to maintain their corporate records on blockchains and exempted virtual currencies from the state property tax, among other things.

The state has recognized a new kind of bank, a special-purpose depository institution (SPDI), that is a regulated custodian for crypto assets. Crypto exchange Kraken and Custodia Bank, led by crypto evangelist Caitlin Long, are among a handful of firms that have acquired the SPDI status since 2020.

Another boost for crypto in the state: During bankruptcy proceedings, cryptocurrencies in Wyoming are considered on par with cash, meaning that crypto, like cash, are considered free from any legal incumbrances. That would provide clarity in cases when crypto companies go bust, Lupien pointed out.

Earlier this year, the state passed the Wyoming Stable Token Act, authorizing state authorities to issue a stablecoin backed by dollars or U.S. Treasury bonds. The stablecoin is expected to be issued at the end of this year, and will give Wyoming “some notoriety,” said David Pope, co-founder of the Wyoming Blockchain Coalition and former member of the Wyoming Legislative Blockchain Task Force.

In February, Wyoming’s House of Representatives passed a bill that prohibits the forced disclosure of private crypto keys by the U.S. state’s courts.

One thing that is currently holding back Wyoming’s stride into the bright blockchain future is the ongoing legal battle for the fate of SPDIs. The fight is being led by Custodia, which was recently denied access to Federal Reserve banking services. This prevents Custodia from executing its banking functions.

The Wyoming crypto advocates believe that Custodia will win its case, and that as soon as it does, crypto businesses will rush into the only state providing specialized banking services with fully-reserved crypto banks. “It will be a snowball,” Pope said.

Moreover, unlike the U.S. regional banks that failed during a recent banking bout, SDPIs are prohibited from lending customer savings, offering a banking alternative that may be attractive to more than just bitcoiners.

“When Custodia prevails, Wyoming will be ground zero for digital assets banking because there are four Wyoming SPDIs standing by, ready to operate as soon as the Fed relents, which the court will make them,” Lupien said. Other SPDIs are Kraken Financial, Commercium Financial and Wyoming Depository and Trust.

The local crypto community includes startup founders, miners, lawyers and accountants catering to the industry, and local influencers. At a typical Wyoming meetup at a coffee shop in Cheyenne, you would usually see a mix of people like “business leaders, accountants, lawyers and enthusiasts,” Lupien said. The state is also represented in the U.S. Senate by “Crypto Queen” Cynthia Lummis (R-WY), who co-authored the bipartisan “Responsible Financial Innovation Act,” that is aimed at creating a regulatory framework for the industry.

According to Pope, an average Wyoming resident might not have noticed the effects of the state’s crypto friendliness, but it’s “something future generations will certainly feel.”